Question for the Money Doctors

Question submitted on Mar 1, 2023.

Question

We are mother-daughter retirees, seeking approval from a mortgage lender for a $127.5k mortgage to purchase for our family's future GA residence. The lovely sfh easily appraised for $134k.

Despite a thorough search, I had no success purchasing hazard insurance to insure my current residence and a second home. Regrettably, insurance redlining persistently plagues Detroiters. My adult son will occupy one of the Detroit properties and maintain them until they are sold this summer to an investor. The GA closing occurs on March 10th. Since FHA policies do not require lender-placed insurance for non-collateralized properties, we will request a waiver.

We have a GA home insurer who has set up the mortgage premium escrow. Can the lender force-place insurance that pertains to my two mortgage-free Detroit residential properties? A knowledgeable real estate attorney characterized the lender as unreasonable and overreaching. We agree that expecting us to pay triple home insurance premiums is an unreasonable, extreme financial burden. We don't want to sue the lender, delay our closing and cause the impatient seller to cancel the deal. Just want a favorable homebuying close, as planned.

Please advise us at your earliest convenience.
Best regards, TJ, and family

Answer

Your fact pattern is a bit confusing and there are many moving parts.

First, the purchase of your new home.   You are getting a mortgage that over 95% of the value of the property.   Ideally, the mortgage should be no more than 80%.   Can you and your family increase the down payment to improve the debt-to-equity ratio?    This means keeping the loan below $107,000.  This will certainly make it easier to get the loan.   This will reduce your payment by around $135/month.

Second, you should consult with your insurance agent to review your options for insurance.   You never want to buy insurance through the lender because they may not be the best or appropriate for you.

Third, increase your down payment so you can avoid the mortgage insurance premiums.   Mortgage insurance is not for your benefit, it is for the benefit of the lender.

Fourth, please do not get lawyers involved since it may get expensive, and you will lose this transaction.   Your realtor should be able to help you get through this.   They will have referrals to good insurance agents and other professionals to help you close your transaction.

Good luck!

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